ECONOMICS - scarcity and choices

ECONOMICS Samuelson and Nordhaus: “The study of how societies choose to use scarce productive resources that have alternative uses, to produce commodities of various kinds and to distribute them among different groups.”

ECONOMICS Gerardo Sicat: “The study of how individuals and society in general make choices that involve the use of scarce resources from among alternative wants that need to be satisfied.”

“You must let go of choices to make the right decision.”  Science of choices “You must let go of choices to make the right decision.”  #hugot

LOOKS AT HOW INDIVIDUAL MARKETS WORK SCOPE of ECONOMICS 1. MICROECONOMICS LOOKS AT HOW INDIVIDUAL MARKETS WORK FOCUSES ON HOW INDIVIDUAL HOUSEHOLDS AND FIRMS MAKE THEIR CHOICES Examples: deals with the factors that determine the price of rice and how much of it is produced and sold

LOOKS AT THE ECONOMY AS A WHOLE SCOPE of ECONOMICS 2. MACROECONOMICS LOOKS AT THE ECONOMY AS A WHOLE LOOKS AT AGGREGATE PRICES, PRODUCTION AND INCOME Examples: analysis of gross national income and total employment; economic growth; inflation, unemployment, economic fluctuations, etc.

ECONOMIC SYSTEMS A system of production, distribution and consumption A mechanism which deals with the production, distribution and consumption of goods and services in a particular society.

ECONOMIC SYSTEMS MARKET ECONOMY FREE ENTERPRISE COMMAND ECONOMY SOCIALIST ECONOMY COMMUNIST ECONOMY MIXED ECONOMY

1. MARKET ECONOMY (Capitalism) An economic system where the individual consumers and businesses interact to solve the economic problem An economic system in which the means of production of goods and services are privately owned and operated for a profit Often called the “free enterprise system” 1. MARKET ECONOMY (Capitalism)

An economic system in which the government manages the economic resources for the society Ex: Cuba, Russia 2. SOCIALIST ECONOMY

An economic system where the factors of production and distribution are owned and managed by the state 3. COMMUNIST ECONOMY

Public and private ownership of the means of production A system where both the private and public institutions exercise economic control Public and private ownership of the means of production Here people are allowed to own private properties 4. MIXED ECONOMY

Law of Demand “as price increases, quantity demanded decreases; and as price decreases, quantity demanded increases, if other factors remain constant.”

Price – goes UP Demand – goes DOWN Law of Demand

Price – goes DOWN Demand – goes UP Law of Demand

Law of Supply “as price increases, quantity supplied increases; and as price decreases, quantity supplied decreases, if other factors remain constant.”

The price attained when quantity demanded equals quantity supplied. Market Equilibrium The price attained when quantity demanded equals quantity supplied.

Law of Demand and Supply “Whenever quantity demanded exceeds quantity supplied, price INCREASES; Whenever quantity supplied exceeds quantity demanded, price DECREASES.” Law of Demand and Supply

MACROECONOMICS GDP \ (Gross Domestic Product) A measure of the value of commodities produced within the country’s borders in a given period. GNP (Gross National Product) A measure of the total expenditures made on final goods and services; the market value of the final goods and services produced by a country’s citizens in a given period.

Basis: Citizenship Basis: Territory MACROECONOMICS (Ex: OFW income) GDP \ (Gross Domestic Product) Basis: Territory Total income earned by domestically-located factors of production, REGARDLESS OF NATIONALITY GNP (Gross National Product) Basis: Citizenship (Ex: OFW income) Total income earned by the nation’s factors of production, REGARDLESS OF WHERE IT IS LOCATED

Labor force = employed + unemployed UNEMPLOYMENT A CONDITION OF PEOPLE WHO ARE ABLE AND WILLING TO WORK BUT CANNOT FIND JOBS. Those who are 15 years old and over who have NO job or business, available for work and actively looking for work. Labor force = employed + unemployed

UNDEREMPLOYMENT Include ALL employed persons who express the desire to have additional hours of work in their present job or have an additional job CASES: 1. mismatch of skills 2. part-time employees 3. employed full-time but the work does not maximize the employee’s skills

OPPORTUNITY COST The next best thing that you forego in order to make/choose one. The value of what you give up in order to have that good.

Law of Diminishing Returns States that all other factors held constant, additional units of an input will yield less and less output.

Law of Diminishing Returns

LET’S REVIEW SOME CONCEPTS MONOPOLY A market structure in which there is only ONE SELLER of a good or service OLIGOPOLY A market structure in which there are a FEW SELLERS MONOPSONY A market situation in which there is only ONE BUYER LET’S REVIEW SOME CONCEPTS PERFECT COMPETITION A form of market structure in which MANY SMALL PRODUCERS sell an IDENTICAL product with easy entry IMPERFECT COMPETITION A form of market structure in which INDIVIDUAL BUYERS and SELLERS are such a big part of the market that they can affect the market price by their actions.

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